Rumors on alleged cardholders profiling have been circulating around the credit card industry and ethical issues have been put to question. As mandated by the Credit Card Act 2009 which took effect in February of the current year, Federal Reserve investigated financial institutions which were or alleged to be involved in redlining.
Redlining or the refusal of financial service in an area has been a controversial issue that puts the lenders and cardholders on both ends. Prior to the Credit Card Act, redlining has been extremely criticized for ethical concerns. Fed said in a report that insurance and mortgage companies used to practice redlining which had been barred by the federal law. The provisions under the Credit Card Act fully caters to the benefits of the cardholders and aims at providing them equal and just rights as consumers. Three years prior to its enactment, Fed conducted an investigation to examine the practices of credit card companies. It was to ensure that discrimination toward an individual or a group of cardholders will be eliminated.
The findings of the investigation stated that credit card companies have been certainly involved in questionable practices of character profiling to ascertain at risk factors that may lead to default accounts. But although Fed was able to prove that there had been redlining processes, the employment of data gathered from profiling remains to be a puzzler. It was unclear whether the information gathered through profiling was used to discriminate a cardholder or a certain group of it. Fed also added that it would be unverifiable whether or not race, economic status, and ethnicity would have a connection to the changes in card terms.
Contrary to Equal Credit Opportunity Act`s prohibition on collecting data regarding race and ethnicity as bases for financial assistance by the lenders, some credit card companies in the past had used zip codes to determine credit eligibility. In effect, the said practice has been permanently banned. Moreover, Fed`s report says that out of the top six international credit card companies, five had been positive in practicing various profiling activities. However, the said practices only affected a relatively small group of cardholders. The Fed was not able to know whether those affected belonged to any particular and distinct class or race.
Since Fed`s findings still required further investigations, any recommendations on the amendments and implementations of rules failed to reach the Congress. In addition, Fed`s findings still do not suffice to regulate card companies from constantly monitoring the transactions of the cardholders because of its effect to the account and identity fraud. The Fed is still set to further their inquiry on redlining and discrimination. But while Fed is still on the way to re-gathering sufficient data, authorities and card companies are expected to observe the rules and regulations regarding the proper treatment of a certain race or group of cardholders.